Italy: Government approves 2023 budget

Rome: Italy’s new right-wing government signed off on its first budget on Tuesday, a package focusing on curbing sky-high energy bills and cutting taxes from next year for payroll workers and the self-employed.

Next year’s budget deficit is targeted to fall to 4.5% of gross domestic product from 5.6% this year. The package is still expansionary because under an unchanged policy scenario the deficit ratio was headed for 3.4%. This was due mainly to strong revenues fuelled by inflation, which boosts sales tax and excise duties connected with the surge in energy prices.

The budget contains almost 35 billion euros ($35.95 billion) of increased spending or tax cuts. Some 60% to be financed through increased borrowing. The rest is to come from targeted tax increases and spending curbs.

A hike in a windfall tax on energy companies that have benefited from the surge in oil and gas prices is due to bring some 2.5 billion euros. The tax rate rises from 25% to 35% from January to July 2023 and, unlike today, will apply to profits instead of revenues.

The budget will also tax capital gains on cryptocurrencies but details are not yet available.

Over 21 billion euros to help firms and households pay electricity and gas bills, mainly through subsidies for energy-intensive firms and low income families.

Around 4.2 billion euros go to reducing the “tax wedge” – the difference between the salary an employer pays and what a worker takes home – with the benefit going to low income workers.

The tax rate on productivity bonuses of up to 3,000 euros is cut to 5% from 10%. Fiscal incentives introduced to encourage hiring on open ended contracts of women under 36, fixed-term workers and people drawing the “citizens’ wage” jobless benefit.

For the self-employed, the budget lift the ceiling on annual income taxed with a single 15% rate to 85,000 euros from 65,000 euros. The same 15% rate is applied to any increase in income compared with the previous three years, with a cap of 40,000 euros.

Next year, able-bodied people of working age will only be able to draw the benefit for a maximum of eight months, ahead of complete abolition of the scheme from Jan 1, 2024.

Next year Italians will be able to draw a pension from the age of 62 provided they have paid in at least 41 years of contributions.

That compares with the current rule, put in place for just this year by the previous government, allowing people to retire at 64 provided they have worked for 38 years.

The budget also extends to 2023, with adjustments, an early retirement scheme for women. Beneficiaries will be able to draw a pension at 58 if they have at least two children, at 59 with just one child, and otherwise at 60.

The budget cuts the VAT sales tax on some essential consumer staples such as baby-care products and female sanitary tampons to 5% from 10%.